Overview:
There has been a decades-old misconception that family trust may hold title to real estate.
The crux of the legal issue in this case was the interpretation of the 'family-in provision' of the San Francisco, CA, rent control ordinance. This provision allows a 'landlord' to evict tenants to make the unit available for a close relative of the landlord. The property owners sued in Superior Court to evict the tenant under this provision.
In the initial superior court trial, the tenant demurred to the complaint, arguing that the landlord was not a natural person or a group of natural persons, but rather a family revocable living trust that held the title to the apartment building. The trial court accepted the argument, sustained the demurrer without leave to amend, and entered a judgment in favor of the tenants in December 2019.
The court's ruling, which stated that the family trust was not 'a natural person' and had no authority to bring the litigation, carries significant legal implications. The 'sustain without leave' means that the complaint does not state a cause of action and cannot be amended to state one, underlining the legal intricacies involved and the potential consequences for trust ownership.
Appeals court decision:
In the appellate court decision, "Boshernitsan v. Bach (2021) 61 Cal. App. 5th 883," the court ruled that a family trust is framed in a way where the 'trustee owns the property on behalf of the Trust, as a matter of law.' This decision necessitates a shift in our understanding of how family trust title ownership is held and may require a new approach to documenting trust ownership.
The property owners appealed the verdict:
The appeal court rendered an opposite verdict. After arguments, the appeals court agreed that a family trust is framed where the "trustee owns the property on behalf of the Trust, as a matter of law." The court reversed the lower court's ruling and awarded judgment to the Appellants (property owners) with attorney fees for the appeal process.
The court stated that the "laws of trust" state that "trusts do not themselves, as entities, hold title to a property." A trust has a "fiduciary relationship concerning the real property," not as a legal entity. However, the trust property is "held in trust" in a divided ownership scheme. "The trustee holds legal title on behalf of the trust, but the beneficiaries hold 'equitable title."
Legal title to a trust property refers to the legal ownership that comes with control rights and compliance with the laws. "Equitable title" gives the beneficiaries the right to enjoy the future benefits that will eventually come with the ownership of the property as the trust assets are distributed.
The "bedrock principle" states that a "trustee holds title to the trust assets" until the trustee is replaced or the assets are distributed to beneficiaries out of the trust.
Comments:
A family or any other form of trust cannot own real estate without a trustee. Additionally, a trust lacks the authority to act without a trustee. A trust is a "legal arrangement" whereby the trustee holds title and manages the assets on behalf of the beneficiaries. The Trustee is the legal owner of the trust assets on behalf of the trust. Drawing up the signature block on documents is essential.
The trustee has a fiduciary duty to act in the best interest of the beneficiaries and administer the trust according to the terms outlined in the trust and applicable laws. The trust document defines the trustee's powers, authorities, and responsibilities in managing the trust assets.
Only trustees can hold legal title to real property, not the trust itself. Unlike a company, a trust is not a separate legal entity. The trust document is a contractual agreement between the trust's "key parties."
Given the complex nature of trust law, it is always advisable to consult a competent lawyer for further inquiry. Their expertise can provide guidance and support in navigating legal matters related to family trusts and real estate, offering reassurance in the face of legal complexity. This underscores the importance of seeking professional advice on legal issues.